Advanced BioHealing, the San Diego maker of the Dermagraft skin patch, has been sold to Irish pharmaceutical company Shire for $750 million as executives quickly scuttled plans to take the business public in a Wednesday initial public stock offering.

The deal on Tuesday came five years after the venture capital owners of Advanced BioHealing purchased Dermagraft and its Torrey Pines manufacturing facility for an undisclosed amount from London medical device maker Smith and Nephew.

The two-inch-by-three-inch frozen patch, made of woven absorbable sutures and cultured human skin cells, is used to treat hard-to-heal foot ulcers in diabetics that can lead to serious infection or amputation in the worst cases.

Advanced BioHealing’s 400 local employees will remain in place and the business should expand in the coming years, said Shire spokesman Matthew Cabrey.

“They are the reason, in addition to the technology, that Shire was attracted to Advanced BioHealing,” he said. “Our intention it to have this team remain as a semiautonomous business within Shire’s specialty pharmaceuticals business operation.”

Shire’s specialty pharmaceuticals division is based in Philadelphia. Advanced BioHealing’s chief executive, Kevin Rakin, will continue to run the business as a member of the Shire management team.

The new owner will seek to expand the approved use of the Dermagraft to venous leg ulcers and other types of wounds, and develop new related products.

The sale price was more than five times the $147 million in revenue that Advanced BioHealing generated in 2010. With a target price of about $15, the company’s public offering had been poised to raise at least $200.3 million.

Shire was drawn to Advanced BioHealing by its existing revenue stream and the potential to increase it significantly, said John McCamant, editor of the Medical Technology Stock Letter in Berkeley.

“They’re saying we can just do this business better than you, and that doesn’t appear to be a huge stretch,” he said.

Shire became the fourth owner of the Dermagraft technology, which was created in the late 1980s by Marrow-Tech, a medical products company in the northern suburbs of New York City.

It moved to San Diego in 1989 and changed its name to Advanced Tissue Sciences two years later.

The Food and Drug Administration turned down the first request to sell the wound patches. After more testing, the agency approved the product in September 2001, but not before a competitor had taken its own version of the product to market.

Advanced Tissue’s executives underestimated the cost and challenges of moving their products forward while some of them collected generous salaries and took out hefty loans from the company.

Within a year, Advanced Tissue declared bankruptcy after sinking more than $100 million into the development Dermagraft and another product for treating severe burns.

Smith and Nephew purchased Dermagraft and the Torrey Pines manufacturing facility from the ashes of the failed company.

The new owner ran into its own troubles, and in May 2006 Dermagraft was sold to Advanced BioHealing, a Westport, Conn., startup that had been working on another early-stage wound healing product. It launched Dermagraft in 2007.

Over the next four years, annual revenue grew to $147.7 million as the company sold more than 200,000 patches to treat more than 50,000 patients, according to Advanced BioHealing documents filed with the Securities and Exchange Commission.

The company lost $14 million in 2007, but by 2010 it earned $7.1 million.

That was just scratching the surface of the product’s potential, according to Advanced BioHealing executives who estimated that 630,000 U.S. patients could benefit from using their product. They calculated the total potential market for Dermagraft to be worth $3 billion annually.

As their success built, the owners began looking for an exit strategy that would provide the resources needed to continue growing the business.

“We’ve been considering a number of options for a number of years,” said Stephen Bloch, one of the company’s directors and a partner with venture capital owner Canaan Partners.

Advanced BioHealing executives notified the SEC on Feb. 25 of their intent to take the company public. At the same time, they were talking with Shire officials about a possible buyout.

“We need to dramatically scale up our manufacturing operations,” Bloch said. “We made the judgment that employees and shareholders were better off partnering with Shire.

“It was a very difficult decision for us,” he said.

Shire brought in $3.5 billion in revenue in 2010 from its specialty pharmaceuticals and human genetic therapies businesses, according to the publicly owned company’s most recent annual report.

“This is really an opportunity to build a strategic area of focus in regenerative medicine,” Cabrey said. “It’s truly about value and growth enhancing for Shire.”